In the late 1990s, when the stock market was on a tear, everybody and his lapdog seemed to be interested in stocks. But the timing was disastrous. A full decade later, stocks are currently lower than they were during those “can’t miss” water cooler conversations.

In the late 1950s, when the stock market was soaring, everybody and his pet rock seemed to be interested in stocks. But the timing was disastrous. The market made no appreciable gains for a 17 year period thereafter.

In the early 2000s, all the rage was on housing. So many people became intrigued by the Robert Kyosaki (there’s always a famous cheerleader) answer to real estate investing. Sadly, buying into the real estate frenzy proved to be the wrong thing to do. House prices have plummeted, and many investors are left with mortgages larger than the value of their houses.

In the early 1980s, things were similar. “Get into a house while you still can” was the motto.   Of course, in regions deemed most popular (Alberta, Canada comes to mind) the timing couldn’t have been worse. A house selling in Banff, Alberta in 1982 (a real hot spot at the time) hadn’t increased with inflation during the 20 years that followed.

The late 1920s was another “Can’t miss” investment era—for stocks this time.  Joe Kennedy famously quipped that even the shoe shining boys were getting in on the action of picking stocks—and winning.  Prices exceeded silly levels and the results were famously disastrous in 1929/1930, when the markets dropped 90%.

Oil in 1973? A can’t miss? Oil prices were on a stratospheric projection, fuelled by the investment world’s exuberance.   Since then, oil prices have fluctuated wildly, but overall, the price of oil hasn’t exceeded the level of inflation since 1973.

Gold? The current hot one? Today it’s the supposed safe haven for your money—and  it’s making people rich.  So you’d better get in, like so many opportunistic rags are spouting.  But “rags” may be the operative word here.  You might want to read your history.   Gold has been tremendously popular before, but the price of an ounce of gold in 1801 has barely kept pace with inflation after more than 200 years.   As a long term investment, it rivals the mattress and has proven to be a far tougher money maker than stocks and real estate ever have been. With gold… buy at your own risk. It’s trendy right now, and unlike real estate and stocks, it isn’t a long term appreciator once inflation takes its bite.   Double trouble.

Following the trend of the day generally leads to disaster for most investors. But we’re wired to follow the herd—even if it means that we’re headed towards mediocrity…or a cliff.  There’s comfort in doing what everyone else is doing.

A look at the opposite direction of the herd tells us much more.   What if you had invested equal monthly sums into the stock market from 1928 until 1938? Those were mostly depression years.   The “wise” council wouldn’t have advocated it, and 1929/1930 would have killed your portfolio, short term. But if you kept buying you would have made a small fortune during that 10 year period–and an even bigger fortune in the many years that followed, if you held on to those shares bought at wonderfully cheap prices.

How about the market crash of 1973/74, the worst crash since 1929? Same thing. Investors ran away from it all—but those who didn’t, and embraced the cheaper prices, made a fortune.

How about 2003? The markets went into a dive when President Bush announced war with Iraq. If you had invested then, with reinvested dividends, you’d be ahead of the game today, even with the market crash of 2008/2009.

I haven’t hand picked a few scenarios that fit my thesis here. This is it. Buy when broad asset classes have plummeted in value, or haven’t moved up for years, and 200 years of history indicates that you’ll be handsomely rewarded. Buy when things (like the economy and the stock market direction) are positive, and you’ll experience average returns, at best. Buy when things are drunkenly euphoric, and you’ll likely get slaughtered. There are no long term exceptions…period.

Why we’re wired to sabotage ourselves is beyond me, and always will be. During every euphoric market (whether real estate, commodity related, or stock related) the contemporary generation chimed, “this time it’s different, prices will keep rising” During every severe market decline, they also chimed, “this time it’s different, prices will keep falling”. History never repeats itself exactly, but Mark Twain was right. It rhymes.

Other truisms include the one about “buying at the bottom”.  You can’t buy at the bottom, because you’ll never know where the bottom is, and nor will anyone else.  Loads of erudite predictors will make their “picks” and one of them will get lucky and thereafter famous, thanks to his/her fortuitousness  and consequential self promotion, but holding off from buying when stocks are being given away is a fool’s errand. Stocks can recover very quickly, and if you’re waiting for better prices, you’ll probably be left on the sidelines. If it’s worth what it’s selling for, buy it. And if it gets cheaper, keep buying.  As of March 2009, the U.S. and International stock markets are definitely worth what they’re selling for.

There have only been a few easier times to buy stocks than now.  And what excites me is that many of my friends and colleagues understand this. This is for you guys.

But, while buying stocks for the long term investor is currently like shooting fish in barrels, I thought I’d write up a few quest-helping caveats. There are plenty of ways to make money in the stock market, of course, but like anything, it’s an “odds game”.   And if you stack the odds in your direction, you’ll likely do very well.